[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Notices]
[Pages 29264-29270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14019]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23199; File No. 812-10978]
U.S. Global Leaders Variable Insurance Trust, et al.; Notice of
Application
May 20, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for an order pursuant to Section 6(c) of
the Investment Company Act of 1940 (``1940 Act'') granting exemptive
relief from Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
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Summary of Application: Applicants seek an order to permit shares
of any current or future series of U.S. Global Leaders Variable
Insurance Trust (the ``Fund'') and shares of any other investment
company that is designed to fund variable insurance products for which
Yeager, Wood & Marshall, Inc. (the ``Adviser'') or any of its
affiliates, may now or in the future serve as manager, investment
adviser, administrator, principal underwriter or sponsor (the Fund and
such other investment companies, collectively, ``Insurance Products
Funds'') to be sold to and held by: (1) Separate accounts funding
variable annuity and variable life insurance contracts issued by both
affiliated and unaffiliated life insurance companies (``Participating
Insurance Companies''); (2) qualified pension and retirement plans
outside of the separate account context (``Qualified Plans'' or
``Plans''); and (3) the Adviser or any of its affiliates (representing
seed money investments in the Insurance Products Funds).
Applicants: U.S. Global Leaders Variable Insurance Trust and
Yeager, Wood & Marshall, Inc.
Filing Date: The application was filed on January 23, 1998, and
amended on March 26, 1998.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request
[[Page 29265]]
a hearing on this application by writing to the Secretary of the
Commission and serving Applicants with a copy of the request, in person
or by mail. Hearing requests must be received by the Commission by 5:30
p.m. on June 15, 1998, and must be accompanied by proof of service on
the Applicants in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
requester's interest, the reason for the request and the issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, c/o Raymond A. O'Hara, III, Esq., Blazzard, Grodd &
Hasenauer, P.C., 943 Post Road East, Westport, Connecticut 06881.
FOR FURTHER INFORMATION CONTACT:
Laura A. Novack, Senior Attorney, or Kevin M. Kirchoff, Branch Chief,
Office of Insurance Products, Division of Investment Management, at
(202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549 (tel. (202) 942-8090).
Applicant's Representations
1. The Fund is a Delaware business trust registered under the 1940
Act as an open-end management investment company. The Fund, which was
organized in October 1997, currently consists of one series.
2. The Adviser, a Delaware corporation, is registered as an
investment adviser under the Investment Advisers Act of 1940, and
serves as the Fund's investment adviser.
3. Applicants desire that the Insurance Products Funds have the
flexibility to offer their shares to separate accounts of Participating
Insurance Companies that fund variable annuity and variable life
insurance contracts (including single premium, scheduled premium,
modified single premium and flexible premium contracts) (collectively,
``Variable contracts''). These separate accounts either will be
registered as investment companies under the 1940 Act or will be exempt
from such registration.
4. The Participating Insurance Companies will establish their own
separate accounts and design their own Variable Contracts. Each
Participating Insurance company will have the legal obligation of
satisfying all requirements under the federal securities laws. Each
Participating Insurance company will enter into a fund participation
agreement with the Insurance Products Fund in which the Participating
Insurance company invests.
5. Applicants state that shares of the Insurance Products Funds
also may be offered directly to Qualified Plans outside the separate
account context. The Plans may choose one or more of the Insurance
Products Funds as the sole investment under the Plan or as one of
several investments. Plan participants may or may not be given the
right to select among the Insurance Products Funds, depending on the
Plan. ``Plan participants'' include not only those participants of
qualified pension or retirement plans as set forth in Treasury
Regulation Sec. 1.817-5(f)(3)(iii) and Revenue Ruling 94-62, but also
include any other trust, account, contract or annuity that is
determined to be within the scope of Treasury Regulations Sec. 1.817-
5(f)(3)(iii). Fund shares sold to Plans will be held, where applicable,
by the trustees of such Plans as required by Section 403(a) of the
Employee Retirement Income Security Act (``ERISA'').
Applicants' Legal Analysis
1. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15)
provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act. The exemptions granted by Rule 6e-2(b) are available
only where the management investment company offers its shares
exclusively to the variable life insurance separate accounts of the
life insurer or any affiliated life insurance company.
2. The use of a common management investment company as the
underlying investment medium for both variable annuity and variable
life insurance separate accounts of a single insurance company (or of
two or more affiliated insurance companies) is referred to as ``mixed
funding.'' The use of a common management company as the underlying
investment medium for variable annuity and/or variable life insurance
separate accounts of unaffiliated insurance companies is referred to as
``shared funding.'' ``Mixed and shared funding'' denotes the use of a
common management investment company to fund the variable annuity and
variable life insurance separate accounts of affiliated and
unaffiliated insurance companies. The relief granted by Rule 6e-
2(b)(15) is not available with respect to a scheduled premium variable
life insurance separate account that owns shares of an underlying fund
that also offers its shares to a variable annuity separate account of
the same company or of any other affiliated or unaffiliated life
insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed and
shared funding.
3. In connection with the funding of flexible premium variable life
insurance contracts issued through a separate account registered under
the 1940 Act as a unit investment trust, Rule 6e-3(T)(b)(15) provides
partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the
1940 Act. These exemptions are available only where all of the assets
of the separate account consist of the shares of one or more registered
management investment companies which offer their shares exclusively to
separate accounts of the life insurer, or of any affiliated life
insurance company, offering either scheduled premium variable life
insurance contracts or flexible premium variable life insurance
contracts, or both; or which also offer their shares to variable
annuity separate accounts of the life insurer or of an affiliated life
insurance company. Thus, Rule 6e-3(T) permits mixed funding with
respect to a flexible-premium variable life insurance separate account,
but precludes shared funding.
4. Applicants assert that the use of the Insurance Products Funds
as common investment media for the Variable Contracts would allow
Participating Insurance Companies to benefit not only from the
investment and administrative expertise of the Adviser, but also from
the cost efficiencies and investment flexibility afforded by a larger
pool of funds. Applicants also submit that mixed and shared funding
would benefit Variable Contract owners by: (a) Eliminating a
significant portion of the costs of establishing and administering
separate funds; (b) permitting a greater amount of assets available for
investment by the Insurance Products Funds, thereby promoting economies
of scale, permitting greater diversification, and making the addition
of new portfolios more feasible; and (c) encouraging more insurance
companies to offer Variable Contracts, resulting in increased
competition with respect to both the design and pricing of Variable
Contracts, which can be expected to result in greater product variation
and lower charges.
5. Applicants assert that the relief granted by sub-paragraph
(b)(15) of Ruled 6e-2 and 6e-3(T) will not be affected by the proposed
sale of Insurance Products Fund shares to Plans. Applicants note,
however, that because the relief under sub-paragraph
[[Page 29266]]
(b)(15) of Rules 6e-2 and 6e-3(T) is available only where shares are
offered exclusively to separate accounts of life insurance companies,
additional exemptive relief is necessary if shares of the Insurance
Products Funds also are to be sold to Plans.
6. Applicants state that current tax law permits the Insurance
Products Funds to increase their asset base through the sale of fund
shares to Plans. Applicants state that Section 817(h) of the Internal
Revenue Code of 1986, as amended (the ``Code''), imposes certain
diversification standards on the underlying assets of variable annuity
contracts and variable life insurance contracts held by the portfolios
of the Insurance Products Funds. The Code provides that such contracts
shall not be treated as an annuity contract or life insurance contract
for any period (and any subsequent period) during which the investments
are not adequately diversified in accordance with regulations
prescribed by the Treasury Department. The regulations provide that, to
meet the diversification requirements, all of the beneficial interests
in an investment company must be held by the segregated asset accounts
of one or more insurance companies. Treas. Reg. Sec. 1.817-5(1989). The
regulations do, however, contain certain exceptions to this
requirement, one of which permits shares of an investment company to be
held by the trustee of a qualified pension or retirement plan without
adversely affecting the ability of shares in the same investment
company also to be held by the separate accounts of insurance companies
in connection with their variable annuity and variable life contracts.
Treas. Reg. Sec. 1.817-5(f)(3)(iii).
7. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T)
under the 1940 Act preceded the issuance of these Treasury regulations,
and that the sale of shares of the same investment company to both
separate accounts and Plans could not have been envisioned at the time
of the adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
8. Applicants therefore request an Order of the Commission
exempting variable life insurance and variable annuity separate
accounts of Participating Insurance Companies (and, to the extent
necessary, any investment adviser, principal underwriter and depositor
of such an account) and Applicants from Sections 9(a), 13(a), 15(a) and
15(b) of the 1940 Act, and sub-paragraph (b)(15) of Rules 6e-2 and 6e-
3(T) thereunder, when shares of the Insurance Products Funds are
offered and sold to, and held by, such separate accounts in the mixed
and shared funding context, regardless of whether shares of the
Insurance Products Funds also are offered and sold directly to Plans.
9. Section 9(a) of the 1940 Act provides that it is unlawful for
any company to serve as an investment adviser to, or principal
underwriter for, any registered open-end investment company if an
affiliated person of that company is subject to a disqualification
enumerated in Section 9(a)(1) or (2).
10. Rules 6e-2 and 6e-3(T) provide partial exemptions from Section
9(a) under certain circumstances, subject to the limitations on mixed
and shared funding. The relief provided by sub-paragraph (b)(15(i) of
Rules 6e-2 and 6e-3(T) permits a person disqualified under Section 9(a)
to serve as an officer, director, or employee of an insurance company
or any of its affiliates, so long as that person does not participate
directly in the management or administration of the underlying
investment company. The relief provided by sub-paragraph (b)(15)(ii) of
Rules 6e-2 and 6e-3(T) permits the life insurer to serve as the
underlying fund's investment adviser or principal underwriter, provided
that none of the insurer's personnel who are ineligible pursuant to
Section 9(a) participate in the management or administration of the
fund.
11. Applicants state that the partial relief from Section 9(a)
found in sub-paragraph (b)(15) of Rules 6e-2 and 6e-3(T), in effect,
limits the amount of monitoring necessary to ensure compliance with
Section 9 to that which is appropriate in light of the policy and
purposes of that Section. Applicants state that those rules recognize
that it is not necessary to apply the provisions of Section 9(a) to the
many individuals who may be involved in an insurance company complex,
but who have no connection with the investment company funding the
separate accounts. Applicants note that the Participating Insurance
Companies are not expected to play any role in the management or
administration of the Insurance Products Funds. Therefore, Applicants
assert that applying the restrictions of Section 9(a) serves no
regulatory purpose. Applicants state that the relief requested should
not be affected by the proposed sale of Insurance Products Funds to
Qualified Plans, because the insulation of the Insurance Products Funds
from those individuals who are disqualified under the 1940 Act remains
in place. Moreover, since the Plans are not investment companies and
will not be deemed affiliated solely by virtue of their shareholdings,
no additional relief is necessary.
12. Sections 13(a), 15(a) and 15(b) of the 1940 Act require ``pass-
through'' voting with respect to underlying investment company shares
held by a separate account. Subparagraph (b)(15)(iii) of Rules 6e-2 and
6e-3(T) under the 1940 Act provides partial exemptions from the pass-
through voting requirements in limited circumstances.
13. For example subparagraph (b)(15)(iii)(B) of Rules 6e-2 and 6e-
3(T) provide that the insurance company may disregard the voting
instructions of its contract owners if the contract owners initiate any
change in the investment company's investment policies, principal
underwriter, or investment adviser. Under the rules, voting
instructions with respect to a change in investment policies may be
disregarded only if the insurance company makes a good faith
determination that such changes would: (a) Violate state law; (b)
result in investments that were not consistent with the investment
objectives of the separate account; or (c) result in investments that
would vary from the general quality and nature of investments and
investment techniques used by other separate accounts of the company or
of an affiliated life insurance company with similar investment
objectives.
14. Applicants state that Rule 6e-2 recognizes that variable life
insurance contracts have important elements unique to insurance
contracts and are subject to extensive state regulation of insurance.
Applicants maintain, therefore, that in adopting Rule 6e-2, the
Commission expressly recognized that exemptions from pass-through
voting requirements were necessary to assure the solvency of the life
insurer and the performance of its contractual obligations by enabling
an insurance regulatory authority or the life insurer to act when
certain proposals reasonable could be expected to increase the risks
undertaken by the life insurer. Flexible premium variable life
insurance contracts and variable annuity contracts are subject to
substantially the same state insurance regulatory authority, and
therefore, corresponding provisions of Rule 6e-3(T) presumably were
adopted in recognition of the same considerations the Commission
applied in adopting Rule 6e-2. Applicants submit that these
considerations are no less important or necessary when an insurance
company funds its separate accounts in connection with mixed and shared
funding, and that such funding does not compromise the goals of the
[[Page 29267]]
insurance regulatory authorities or of the Commission.
15. Applicants further state that the sales of shares of the
Insurance Products Funds to Plans does not affect the relief requested
in this regard. As previously noted, shares of the Insurance Products
Funds will be held, where applicable, by the trustees of such Plans as
required by Section 403(a) of ERISA. Section 403(a) also provides that
the trustees must have exclusive authority and discretion to manage and
control the Plan with two exceptions: (a) When the Qualified Plan
expressly provides that the trustees are subject to the direction of a
name fiduciary who is not a trustee, in which case the trustees are
subject to proper directions made in accordance with the terms of the
Plan and not contrary to ERISA; and (b) when the authority to manage,
acquire or dispose of assets of the Qualified Plan is delegated to one
or more investment managers pursuant to Section 402(c)(3) of ERISA.
16. Applicants submit that there is no contractual or other
relationship between the Participant Insurance Companies and any Plans
which would affect the solvency of the life insurer, would affect the
performance of the life insurer's contractual obligations, or would be
expected to increase the risks undertaken by the life insurer.
Accordingly, Applicants submit that where Plans provide participants
with the right to give voting instructions, the purchase of shares by
Plans does not present any complications not otherwise occasioned by
mixed or shared funding.
17. Applicants state that no increased conflicts of interest would
be presented by the granting of the requested relief. Applicants assert
that shared funding does not present any issues that do not already
exist where a single insurance company is licensed to do business in
several states. Applicants note that where different Participating
Insurance Companies are domiciled in different states, it is possible
that the state insurance regulatory body in a state in which one
Participating Insurance Company is domiciled could require action that
is inconsistent with which the requirements of other insurance
regulators in one or more other states in which other Participating
Insurance Companies are domiciled. Applicants submit that this
possibility is no different or greater than exists where a single
insurer and its affiliates offer their insurance products in several
states.
18. Applicants further submit that affiliation does not reduce the
potential for differences in state regulatory requirements. In any
event, the conditions (adapted from the conditions included in Rule 6e-
3(T)(b)(15)) discussed below are designed to safeguard against any
adverse effects that these differences may produce. If a particular
state insurance regulator's decision conflicts with the majority of
other state regulators, the affected insurer may be required to
withdraw its separate account's investment in the relevant Insurance
Products Funds.
19. Applicants also argue that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to when a
Participating Insurance Company could disregard Variable Contract owner
voting instructions. Potential disagreement is limited by the
requirements that the Participating Insurance Company's decision to
disregard voting instructions be both reasonable and based on specified
good faith determinations. However, if a Participating Insurance
Company's decision to disregard Variable Contract owner voting
instructions represents a minority position or would preclude a
majority vote approving a particular change, such Participating
Insurance Company may be required, at the election of the relevant
Insurance Products Fund, to withdraw its separate account's investment
in that Insurance Products Fund. No charge or penalty will be imposed
upon the Variable Contract owners as a result of such a withdrawal.
20. Applicants submit that there is no reason why the investment
policies of an Insurance Products Fund with mixed funding would, or
should, be materially different from what those policies would, or
should, be if such Insurance Products Fund or series thereof funded
only variable annuity or variable life insurance contracts. Moreover,
Applicants represent that the Insurance Products Funds will not be
managed to favor or disfavor any particular insurer or type of
insurance product.
21. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable annuity
contracts and variable life insurance contracts held in the portfolios
of management investment companies. Treasury Regulation Sec. 1.817-
5(f)(3)(iii), which established diversification requirements for such
portfolios, specifically permits, among other things, ``qualified
pension or retirement plans'' and insurance company separate accounts
to share the same underlying investment company. Therefore, Applicants
assert that neither the Code, the Treasury regulations, nor the Revenue
Rulings thereunder, present any inherent conflicts of interest if the
Qualified Plans, variable annuity separate accounts, and variable life
insurance separate accounts all invest in the same management
investment company.
22. Applicants note that while there are differences in the manner
in which distributions are taxed for variable annuity contracts,
variable life insurance contracts and Plans, these tax consequences do
not raise any conflicts of interest. When distributions are to be made,
and the separate account or Qualified Plan is unable to net purchase
payments to make the distributions, the separate account or the Plan
will redeem shares of the Insurance Products Funds at their respective
net asset values. The Qualified Plan will then make distributions in
accordance with the terms of the Plan. The Participating Insurance
Company will make distributions in accordance with the terms of the
Variable Contract.
23. Applicants state that they do not see any greater potential for
irreconcilable material conflicts arising between the interests of
participants under the Plans and owners of the Variable Contracts
issued by the separate accounts of Participating Insurance Companies
from possible future changes in the federal tax laws than that which
already exists between variable annuity contract owners and variable
life insurance contract owners.
24. Applicants submit that the ability of the Insurance Products
Funds to sell their respective shares directly to Qualified Plans does
not create a ``senior security,'' as such term is defined under Section
18(g) of the 1940 Act, with respect to any Variable Contract owners as
opposed to a participant under a Qualified Plan. Regardless of the
rights and benefits of participants under the Qualified Plans, or
Variable Contract owners under their Variable Contracts, the Plans and
the separate accounts have rights only with respect to their respective
shares of the Insurance Products Funds. No shareholder of any of the
Insurance Products Funds has any preference over any other shareholder
with respect to distribution of assets or payments of dividends.
25. Applicants state that there are no conflicts between the
Variable Contract owners and the Plan participants with respect to
state insurance commissioners' veto powers over investment objectives.
The state insurance commissioners have been given the veto power to
prevent, among other things, insurance companies from indiscriminately
redeeming their separate accounts out of one fund and investing in
another. To accomplish such redemptions and transfers,
[[Page 29268]]
complex and time consuming transactions must be undertaken. Conversely,
trustees of Plans or the participants in participant-directed Plans can
make the decision quickly and implement redemption of shares from an
Insurance Products Fund and reinvest the moneys in another funding
vehicle without the same regulatory impediments, or, as is the case
with most Plans, even hold cash pending a suitable alternative
investment. Based on the foregoing, Applicants represent that even
should the interests of Variable Contract owners and the interests Plan
participants conflict the conflicts can be resolved almost immediately
in that trustees of the Plans can, independently, redeem shares out of
the Insurance Products Funds.
26. Applicants state that, regardless of the types of Insurance
Products Fund shareholders, a fund's adviser is legally obligated to
manage the fund in accordance with the fund's investment objectives,
policies and restrictions as well as any guidelines established by the
fund's board. Applicants assert that the Adviser does so, and thus,
would manage the Insurance Products Funds in the same manner as any
other mutual fund.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of each Insurance Products Fund's Board of Trustees
or Directors (each, a ``Board'') shall consist of persons who are not
``interested persons'' thereof, as defined by Section 2(a)(19) of the
1940 Act and the rules thereunder and as modified by any applicable
orders of the Commission, except that if this condition is not met by
reason of the death, disqualification, or bona fide resignation of any
Board member, then the operation of this condition shall be suspended:
(a) for a period of 45 days, if the vacancy or vacancies may be filled
by the Board; (b) for a period of 60 days, if a vote of shareholders is
required to fill the vacancy or vacancies; or (c) for such longer
period as the Commission may prescribe by order upon application.
2. Each Insurance Products Fund's Board will monitor the fund for
the existence of any material irreconcilable conflict between and among
the interests of the Variable Contract owners of all separate accounts
and of Plan participants and Qualified Plans investing in the Insurance
Products Funds, and determine what action, if any, should be taken in
response to such conflicts. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) An action by any state
insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretive letter, or any
similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of the funds are being managed;
(e) a difference in voting instructions given by variable annuity
contract owners, variable life insurance contract owners and trustees
of the Plans; (f) a decision by a Participating Insurance Company to
disregard the voting instructions of Variable Contract owners; or (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of Plan participants.
3. The Adviser (or any other investment adviser of an Insurance
Products Fund), any Participating Insurance Company and any Qualified
Plan that executes a fund participation agreement upon becoming an
owner of 10% of more of the assets of an Insurance Products Fund
(collectively, ``Participants'') will report any potential or existing
conflicts to the Board of any relevant Insurance Products Fund.
Participants will be obligated to assist the appropriate Board in
carrying out its responsibilities under these conditions by providing
the Board with all information reasonably necessary for the Board to
consider any issues raised. This responsibility includes, but is not
limited to, an obligation by each Participating Insurance Company to
inform the Board whenever Variable Contract owner voting instructions
are disregarded and, if pass-through voting is applicable, an
obligation by each Qualified Plan to inform the Board whenever it has
determined to disregard Plan participant voting instructions. The
responsibility to report such information and conflicts and to assist
the Boards will be contractual obligations of all Participating
Insurance Companies and Qualified Plans investing in the Insurance
Products Funds under their respective agreements governing
participation in the Insurance Products Funds, and such agreements
shall provide that these responsibilities will be carried out with a
view only to the interests of Variable Contract owners and, if
applicable, Plan participants.
4. If a majority of an Insurance Products Fund's Board members, or
a majority of the disinterested Board members, determine that a
material irreconcilable conflict exists, the relevant Participating
Insurance Companies and Qualified Plans, at their expense and to the
extent reasonably practicable (as determined by a majority of the
disinterested Board members), shall take whatever steps are necessary
to remedy or eliminate the material irreconcilable conflict. Such steps
could include: (a) Withdrawing the assets allocable to some or all of
the separate accounts from the Insurance Products Fund or any of its
series and reinvesting such assets in a different investment medium,
which may include another series of the Insurance Products Fund or
another Insurance Products Fund; (b) in the case of Participating
Insurance Companies, submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable
Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., variable annuity or variable life insurance
contract owners of one ore more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected
Variable Contract owners the option of making such a change; and (c)
establishing a new registered management investment company or managed
separate account. If a material irreconcilable conflict arises because
of a decision by a Participating Insurance Company to disregard
Variable Contract owner voting instructions, and this decision
represents a minority position or would preclude a majority vote, the
Participating Insurance Company may be required, at the election of the
Insurance Products Fund, to withdraw its separate account's investment
in such fund, and no charge or penalty will be imposed as a result of
such withdrawal. If a material irreconcilable conflict arises because
of a Qualified Plan's decision to disregard Plan participant voting
instructions, if applicable, and that decision represents a minority
position or would preclude a majority vote, the Qualified Plan may be
required, at the election of the Insurance Products Fund, to withdraw
its investment in such fund, and no charge or penalty will be imposed
as a result of such withdrawal. The responsibility to take remedial
action in the event of a Board determination of a material
irreconcilable conflict and to bear the cost of such remedial action
shall be a contractual obligation of all Participating Insurance
Companies and Qualified Plans under their agreements governing
participation in the Insurance Products Funds and these
responsibilities shall be carried out with a view only to the interests
of the Variable Contract owners and, as applicable, Plan participants.
[[Page 29269]]
5. For purposes of Condition 4, a majority of the disinterested
members of the applicable Board shall determine whether or not any
proposed action adequately remedies any material irreconcilable
conflict, but in no event will an Insurance Products Fund or the
Adviser (or any other investment adviser of the Insurance Products
Funds) be required to establish a new funding medium for any Variable
Contract. No Participating Insurance Company shall be required by
Condition 4 to establish a new funding medium for any Variable Contract
if a majority of Variable Contract owners materially affected by the
material irreconcilable conflict vote to decline such offer. No
qualified Plan shall be required by Condition 4 to establish a new
funding medium for such Qualified Plan if: (a) A majority of Plan
participants materially and adversely affected by the material
irreconcilable conflict vote to decline such offer; or (b) pursuant to
governing plan documents and applicable law, the Plan makes such
decision without Plan participant vote.
6. Participants will be informed promptly in writing of a Board's
determination of the existence of an irreconcilable material conflict
and its implications.
7. Participating Insurance Companies will provide pass-through
voting privileges to all Variable Contract owners so long as the
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for Variable Contract Owners. Accordingly,
such Participating Insurance Companies, where applicable, will vote
shares of the Insurance Products Fund held in their separate accounts
in a manner consistent with voting instructions timely received from
Variable Contract owners. In addition, each Participating Insurance
Company will vote shares of the Insurance Products Fund held in its
separate accounts for which it has not received timely voting
instructions from contract owners, as well as shares it owns, in the
same proportion as those shares for which it has received voting
instructions. Participating Insurance Companies will be responsible for
assuring that each of their separate accounts investing in an Insurance
Products Fund calculates voting privileges in a manner consistent with
all other Participating Insurance Companies. The obligation to vote an
Insurance Products Fund's shares and calculate voting privileges in a
manner consistent with all other separate accounts investing in the
Insurance Products Fund will be a contractual obligation of all
Participating Insurance Companies under the agreements governing
participation in the Insurance Products Fund. Each Plan will vote as
required by applicable law and governing Plan documents.
8. As long as the Commission continues to interpret the 1940 Act as
requiring pass-through voting privileges for Variable Contract owners,
the Adviser (or any of its affiliates) will vote its shares of any
series of any Insurance Products Fund in the same proportion as all
Variable Contract owners having voting rights with respect to that
series; provided, however, that the Adviser (or any of its affiliates)
shall vote its shares in such other manner as may be required by the
Commission or its staff.
9. All reports of potential or existing conflicts received by a
Board, and all Board action with regard to: (a) Determining the
existence of a conflict; (b) notifying Participants of a conflict; and
(c) determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the meetings of
the appropriate Board or other appropriate records. Such minutes or
other records shall be made available to the Commission upon request.
10. Each Insurance Products Fund will notify all Participating
Insurance Companies that separate account prospectus disclosure
regarding potential risk of mixed and shared funding may be
appropriate. Each Insurance Products Fund shall disclose in its
prospectus that: (a) Its shares may be offered to insurance company
separate accounts that fund both variable annuity and variable life
insurance contracts, and to Qualified Plans; (b) differences in tax
treatment or other considerations may cause the interests of various
Variable Contract owners participating in the Insurance Products Fund
and the interests of Qualified Plans investing in the Insurance
Products Fund to conflict; (c) the Board will monitor the Insurance
Products Funds for any material conflicts and determine what action, if
any, should be taken.
11. Each Insurance Products Funds will comply with all provisions
of the 1940 Act requiring voting by shareholders (for these purposes,
the persons having a voting interest in the shares of the Insurance
Products Funds). In particular, each such Insurance Products Fund
either will provide for annual shareholder meetings (except insofar as
the Commission may interpret Section 16 of the 1940 Act not to require
such meetings) or comply with Section 16(c) of the 1940 Act (although
none of the Insurance Products Funds shall be one of the trusts
described in Section 16(c) of the 1940 Act), as well as with Section
16(a) of the 1940 Act and, if and when applicable, Section 16(b) of the
1940 Act. Further, each Insurance Products Fund will act in accordance
with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of Board members and with
whatever rules the Commission may promulgate with respect thereto.
12. If and to the extent that Rule 6e-2 or rule 6e-3(T) under the
1940 Act is amended or Rule 6e-3 under the 1940 Act is adopted, to
provide exemptive relief from any provision of the 1940 Act, or the
rules promulgated thereunder, with respect to mixed or shared funding,
on terms and conditions materially different from any exemptions
granted in the order requested in the application, then the Insurance
Products Funds and/or the Participants, as appropriate, shall take such
steps as may be necessary to comply with Rule 6e-2 or Rule 6e-3(T), as
amended, or proposed rule 6e-3 as adopted, to the extent such Rules are
applicable.
13. The Participants, at least annually, shall submit to each Board
such reports, materials or data as each Board may reasonably request so
that such Boards may fully carry out the obligations imposed upon them
by the conditions stated in the application. Such reports, materials
and data shall be submitted more frequently if deemed appropriate by
the Board. The obligations of the Participants to provide these
reports, materials and data upon reasonable request of a Board shall be
contractual obligation of all Participants under the agreements
governing their participation in the Insurance Products Funs.
14. If a Qualified Plan or Plan participant shareholder should
become an owner of 10% or more of the assets of an Insurance Products
Fund, such Plan will execute a participation agreement with such fund
which includes the conditions set forth herein to the extent
applicable. A Qualified Plan or Plan participant will execute an
application containing an acknowledgment of this condition upon such
Plan's initial purchase of the shares of any Insurance Products Fund.
Conclusion
For the reasons summarized above, Applicants assert that the
requested exemptions are appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act.
[[Page 29270]]
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14019 Filed 5-27-98; 8:45 am]
BILLING CODE 8010-01-M
